How A High Earning Spouse Affects Your Railroad Retirement

Greetings, everyone, and welcome to another edition of the Highball Advisors Railroad Retirement whiteboard. I'm John McNamara from Highball Advisors, and today's focus is on the intricate strategies that can be employed when navigating the intersection of railroad retirement and social security, particularly when dealing with a high-earning spouse. The decisions surrounding claiming strategies can significantly impact your financial future, potentially amounting to hundreds of thousands of dollars in benefits. So, let's dive into the fundamentals.

At full retirement age, which can be 60/30 or other combinations, a railroader receives 100% of their tier one and tier two benefits. A spouse, in turn, is entitled to 50% of the tier one amount and 45% of the tier two amount. This is the straightforward part of the equation.

However, things become more intricate when the spouse also has their own social security benefits based on their earnings history. It's important to note that both railroad retirement and social security benefits will be administered through the Railroad Retirement Board. You cannot simultaneously receive a spousal tier one and a social security payment; this is known as "double-dipping." Instead, your railroad retirement benefit will be reduced by your social security benefit to ensure you receive the higher of the two.

Let's illustrate this with an example: Consider a railroader reaching full retirement age at 60/30. Their tier one benefit is $2,500, and their tier two benefit is $1,000. The spousal tier one entitlement is $1,250, and the spousal tier two is $450. Now, if the spouse claimed their social security benefit, they'd receive $3,000 at full retirement age, and their spousal tier two would still be approximately $4,500 (with inflation).

But here's where strategy comes into play: The spouse could opt to delay their social security benefit to maximize its growth, earning an 8% increase per year from full retirement age (67) to age 70. This would result in a social security benefit of nearly $3,800. When coupled with the spousal tier two, the total benefit rises significantly.

The key to optimizing these benefits is understanding your spouse's social security statement, which provides projections for full retirement age and age 70 benefits. Comparing these with the spousal benefits under railroad retirement allows you to devise an optimal claiming strategy. Typically, starting the spousal annuity in railroad retirement early and allowing the social security benefit to grow offers a favorable approach.

Remember, everyone's situation is unique, so it's essential to tailor your strategy to your specific circumstances. If you're nearing retirement or in retirement, don't hesitate to reach out to me for personalized guidance through the railroad retirement planning process. This can make a substantial difference in your financial security. Your feedback and support are greatly appreciated, so please click the like button and the notification bell to stay updated with our latest videos. Until next time, stay safe, stay on track, and take care. Farewell, everyone!

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved from Highball Advisors, and all rights are reserved.